USD/JPY: Underlying dovish Fed-BoJ divergence to drive the pair higher – OCBC

The 115.00 support held out after a test on Monday. Economists at OCBC Bank expect the USD/JPY pair to remain supported as the risk reversals have moved less in favour of USD/JPY downside.

Dips should be shallow

“While there is a chance of further declines on risk-off, our bias is that dips should be shallow, and there are better expressions of global risk-off than being short USD/JPY for now.”

“Look towards the Fed-BoJ divergence and the UST-JGB front-end yield spread to return as drivers should we see further de-escalation from here.”